Rising interest rates will take away some home shoppers’ buying power

Interest rates are the percentage charged to a buyer when they purchase a home on their mortgage loan, said Chalice Springfield, CEO of Sears Real Estate. She said they affect those who want to buy a home and get a new mortgage, or those who are thinking about refinancing a current mortgage on the home they currently own.

How higher interest rates affect home payments

Those looking for mortgage loans will be able to feel the power of a 1 percent difference more so than a few percentage points.

Angell Fuchs, a mortgage loan officer at Home Team Lending, used an example of a $215,000 property: if that person has a 4.75 percent interest rate, their monthly payment will be $1,436, whereas if they have a 3.75 percent interest rate, the monthly payment would be $1,312.

That extra $100 monthly difference can lead homebuyers away from the house they really want, she said.

Northern Colorado median sales prices

According to data from Springfield, the Greeley/Evans metro area had a detached median sales price of $260,000 at the end of November. Loveland/Berthoud area’s was $341,250 and Fort Collins was $358,000.

Since Donald Trump's election in November, mortgage interest rates have been on the rise and Weld County homebuyers are feeling the effects.

Mortgage interest rates have "gone through the roof" since the election, according to Angell Fuchs, a mortgage loan officer at Home Team Lending, 1019 37th Ave. The stock market spiked after Trump's victory, thus increasing mortgage rates, Fuchs said.

A more stable economy tends to cause an increase in mortgage rates, as well, she said. The stabilized economy also was why the Federal Reserve nudged its key interest rate for the first time in nearly a decade Wednesday by .25 percent.

“When and if mortgage interest rates go up, for every 1 percent that they do increase, it decreases a person’s home buying power by about 10 percent in the price.

— Chalice Springfield, CEO of Sears Real Estate

Recommended Stories For You

Chalice Springfield, CEO of Sears Real Estate, 2021 Clubhouse Drive, No. 100, said the Fed's raise isn't a direct and automatic increase to home mortgage interest rates, but rates could directly affect buyers and realtors. She said mortgage interest rates are tied more directly to the bond markets, which generally respond to increasing interest rates.

"When and if mortgage interest rates go up, for every 1 percent that they do increase, it decreases a person's home-buying power by about 10 percent in the price," she said in an email. "The reason it decreases a person's buying power is that with the increase in the mortgage interest rate, the person's home mortgage payment increases, as well."

Homebuyers, as a result, qualify for less because they'll incur more debt in the future, she said.

"(The Greeley/Evans metro area) is still a competitive market for buyers looking under $250,000, and if interest rates rise significantly, it may not allow them to purchase the same price at what they are qualified for today," she said.

Fuchs said before the election, mortgage interest rates were consistently under 4 percent, ranging anywhere from 3.25 percent to 3.75 percent. On Wednesday, they were at 4.25 percent, and she said they will definitely remain over 4 percent for the next year.

Those looking for mortgage loans are able to feel the power of a 1 percent difference more so than a few percentage points, considering it costs them about $100 more per month.

Fuchs estimated the historic lows of the 3 percent rates wouldn't be back in the near future. Those locked into those 3 percent rate loans won't feel the effects of higher rates, she said, as they should be locked into their rate.

First-time buyers will probably feel the brunt of this change, the two experts agreed.

"If rates increase, (homebuyers) may need to save more down payment to offset the increase in the mortgage and continue to be in the same price range they have been looking in," Springfield said.

Fuchs said rates in 2017 likely will settle between 4 percent and 4.5 percent, but those rates are ultimately dependent on the stock market's performance. She said first-time buyers — and those looking for a mortgage loan in general — can do three things to benefit their future as interest rates rise: save money, get their credit score as high as they can and lower their debt.

According to Springfield, real estate professionals have anticipated this rate increase, considering they've been at a relatively low rate for a while and the economy has been bouncing back. She said she is not worried, though, because there is still significant demand in the housing market and steady jobs that spur the economy in Weld County.

"Unless they went up drastically causing some people to be priced entirely out of the market, I believe we will continue to see a positive housing market in 2017," Springfield said. "But we certainly have our eye on and will pay attention to what's happening with interest rates on a regular basis."

What are interest rates?

Interest rates are the percentage charged to a buyer when they purchase a home on their mortgage loan, said Chalice Springfield, CEO of Sears Real Estate. She said they affect those who want to buy a home and get a new mortgage, or those who are thinking about refinancing a current mortgage on the home they currently own.

How higher interest rates affect home payments

Those looking for mortgage loans will be able to feel the power of a 1 percent difference more so than a few percentage points.

Angell Fuchs, a mortgage loan officer at Home Team Lending, used an example of a $215,000 property: if that person has a 4.75 percent interest rate, their monthly payment will be $1,436, whereas if they have a 3.75 percent interest rate, the monthly payment would be $1,312.

That extra $100 monthly difference can lead homebuyers away from the house they really want, she said.

Northern Colorado median sales prices

According to data from Springfield, the Greeley/Evans metro area had a detached median sales price of $260,000 at the end of November. Loveland/Berthoud area’s was $341,250 and Fort Collins was $358,000.